Kier admits to higher debts and Broadmoor losses

11 Mar Kier has today admitted to a higher than previously disclosed debt burden and a £25m hit on its Broadmoor Hospital redevelopment project.

Executive chairman Philip Cox

However there is still no news in today’s trading update about a new chief executive.

Kier got rid of Haydn Mursell as chief executive in January after the company decided it need a fresh start after December’s rights issue flopped. Chairman Philip Cox, and accountant, has been acting as executive chairman in the interim.

Kier asked shareholders to stump up in December to cut debt. Fewer than 38% of the new shares were snapped up, leaving the underwriters to pay out the bulk.

Kier has subsequently been forced to recalculate what its real debt actually is.

In a statement today it said : “The group has revised its net debt position as at 31 December 2018 to £180.5m (from c.£130m) and, accordingly, has re-calculated its average month-end net debt for the six months ended 31 December 2018 as being c.£430m (from c.£370m).

“In the course of preparing its FY19 interim results and finalising the 31 December 2018 net debt position, the company identified a number of adjustments (in aggregate: £10.3m), principally relating to the group's hedging activities, and has revised the classification of the debt (in aggregate: £40.2m) associated with certain developments assets held for resale at 31 December 2018. The group originally consolidated this debt balance within assets held for resale on its balance sheet; following the re-classification, the debt has been included within the group's net debt position.”

To meet its debt interest payments, Kier needs to ensure cash keeps coming into the business. As we have regularly documented here, Kier has chased turnover assiduously. According to data gathered by the Builders’ Conference, in 2018 Kier won 171 construction contracts, with a total combined value of £2.8bn. In the first two months of 2019 Kier has already won £1.4bn worth of new construction business from 67 different contracts.

However, suspicions that Kier sometimes wins work at the expense of profit are given weight by a second revelation from the board today: it has lost £25m on its Broadmoor Hospital redevelopment project (pictured below).

Kier has a £115m contract to build a new hospital with 10 wards containing 162 secure mental health beds to replace the facilities currently provided in outdated Victorian buildings. Kier’s winning price was significantly under the £150m originally estimated by the client, the West London Mental Health Trust. Kier started work in 2014 with an expected completion date of June 2017. Defects and delays put that back to April 2019 but then that became unachievable too. In September 2018 the client said: “Following an update from Kier, it is clear that the final completion of the construction of the new Broadmoor Hospital is taking longer than originally envisaged. This means that the move will not take place by the spring, as intended. A new date will be confirmed as soon as possible.”

The Kier board has reviewed the operational progress and cost recovery programme of the project and still expects the first phase of the project to be handed over 'shortly'. Follow-on phases of the project, which account for less than 10% of total value, will then start.

The Kier board said today: “The group has recently agreed a process with the client which is designed to reach agreement with respect to the group's entitlement to the additional costs associated with the project's delay. Following its most recent review, the board has concluded that a non-underlying provision of £25m will be included in the group's FY19 interim results in respect of future recoveries from the client and other third parties.”

Apart from the restated debt and the contract loses, everything else is going according to plan, the board said. “The group continues to forecast a net cash position at 30th June 2019 and remains focused on reducing its average month-end net debt… The group remains on course to meet its underlying FY19 expectations, with the full-year results being weighted towards the second-half of the financial year, as expected,” it said.